Patriot Coal to phase out mountaintop removal

As part of a deal with citizen groups, Patriot Coal is going to retire this dragline mining machine that is currently used at its Hobet complex along the Boone-Lincoln County line.

HUNTINGTON, W.Va. -- Patriot Coal has agreed to phase out mountaintop removal and other forms of strip mining, in a move Patriot officials say is in the best interests of their company, its employees and the communities where it operates.

In a deal with citizen groups and environmentalists, Patriot said it would never seek new permits for large-scale surface mining operations, according to details of the settlement that were made public in federal court Thursday afternoon.

St. Louis-based Patriot can continue some existing and smaller mining projects, but must also implement a cap on surface production and eventually stop all strip mining when existing coal leases expire.

Ben Hatfield, president and CEO of Patriot, said the plan should help his company emerge from bankruptcy, focus on underground mining, and curb mountaintop removal's effects on coalfield communities.

"Patriot Coal recognizes that our mining operations impact the communities in which we operate in significant ways," Hatfield told U.S. District Judge Robert C. Chambers. "We believe the proposed settlement will result in a reduction of our environmental footprint."

The deal does not require Patriot to immediately close any mines or lay off any workers. The company must cut corporate-wide surface production starting in 2014, and gradually reduce it to no more than 3 million tons annually -- less than half of 2011 surface output -- by 2018.

Patriot, the second largest producer of surface-mined coal in West Virginia, becomes the first U.S. coal operator to announce plans to abandon mountaintop removal, a controversial practice linked to serious environmental damage and coalfield public health problems.

"Patriot's decision that mountaintop removal and other large surface mines are not in its best interests is the inevitable conclusion for any mining company that actually has to pay the costs of the environmental harm it creates," said Joe Lovett, an Appalachian Mountain Advocates lawyer who negotiated the deal with Patriot on behalf of the Sierra Club, the West Virginia Highlands Conservancy and the Ohio Valley Environmental Coalition.

Lawyers for both sides unveiled the settlement -- which has quietly been in the works for months -- during a surprisingly low-key hearing in U.S. District Court in Huntington.

Unlike most developments involving West Virginia's coal industry, elected officials and other government leaders did not rush Thursday to issue public statements offering their views on the Patriot settlement.

The settlement still faces a review by the U.S. Justice Department, and needs approval from Chambers and from the judge overseeing Patriot's bankruptcy case.

After being briefed on the deal, Chambers said it "sounds to be a pretty fair result, which seems to be to the benefit of both sides of this litigation and, hopefully, to the people of the state of West Virginia."

The settlement grew out of efforts to resolve issues surrounding more than $400 million in liability Patriot faces to clean up selenium pollution that scientists believe is damaging water quality and harming aquatic life downstream from the company's operations.

Patriot had already agreed to a deal to clean up dozens of illegal selenium discharges at three major mining complexes in Southern West Virginia. But since filing for bankruptcy reorganization in July, Patriot has been at odds with citizen groups over the company's efforts to delay its compliance deadlines.

The settlement gives Patriot the additional time, bumping back compliance deadlines from May 2013 until August 2014. Hatfield said the move allows the company to defer up to $27 million of compliance costs from 2012 and 2013 to 2014 and beyond, improving Patriot's liquidity as it tries to complete bankruptcy reorganization.

"Importantly, this proposed settlement allows Patriot to continue mining according to existing permits and is consistent with our long-term business plan to focus capital on expanding higher-margin metallurgical coal production and limiting thermal coal investments to selective opportunities where geologic and regulatory risks are minimized," Hatfield said.

Details of the broader deal on mountaintop removal were spelled out in a 15-page "global settlement" document made public Thursday:

Patriot will never submit new applications for Clean Water Act "dredge-and-fill" permits for new "large-scale surface mining." That term is defined as any surface mining that requires an individual permit review by the federal Army Corps of Engineers. It does not include permits for underground mine face-ups, coal-hauling roads, preparation plants and other such facilities.

The company agrees to a five-year plan to reduce its surface mining tonnage from last year's 7.7 million tons to a permanent cap of 3 million tons annually in 2018. If Patriot buys other companies that conduct surface mining, those new subsidiaries are subject to the tonnage cap. If Patriot sells any of its surface mining operations, the expected future tonnage from those mines is subtracted from the cap.

In West Virginia, Patriot will retire its two draglines, giant boom excavators used at its largest mountaintop removal sites. A dragline used at its Paint Creek complex will be retired within 60 days, while one at its Hobet complex along the Boone-Lincoln border will be retired by Dec. 31, 2015. Patriot can sell the machines, but only if the buyer agrees never to use them again in Kentucky, Tennessee, Virginia or West Virginia.

Patriot can continue with "small-scale surface mining," but only at existing mining complexes where both underground and surface mining was already underway or planned. Small-scale surface mining is also limited to coal already owned or leased by Patriot, and is defined as not being associated with the construction of valley fills requiring an individual permit under Section 404 of the Clean Water Act.

"At some point as those leases expire ... there will be no small-scale surface mining," said Derek Teaney, another Appalachian Mountain Advocates lawyer who negotiated the deal.

Patriot agrees to withdraw existing permit applications for two large surface mines, Colony Bay and Hill Fork, both in Boone County. The company can continue to pursue a permit for its Huff Creek Surface Mine in Logan County, and environmental groups agreed not to file a legal challenge unless the U.S. Environmental Protection Agency raises water quality concerns about the proposal.

There were hints of a more substantial settlement with Patriot in August, when lawyers told Chambers they had reached an "agreement in principal" that would help Patriot restructure its operations and finances as part of its bankruptcy proceeding. The deal fell through a month later, but apparently got back on track late last month, when Hatfield -- a longtime coal industry insider who held posts with Massey Energy and International Coal Group -- was promoted to both president and chief operating officer of Patriot.

Last year, Patriot ranked behind only Alpha Natural Resources in terms of total surface-mined coal produced in West Virginia, according to U.S. Mine Safety and Health Administration data.

Surface mines accounted for about 30 percent of Patriot's total production of 26 million tons of coal in West Virginia and Kentucky. The company employed nearly 750 workers at strip mines, or roughly 18 percent of its total workforce, according to MSHA data.

While the agreement eventually reduces Patriot's strip-mining production to zero, it phases that reduction in starting with a cap of 6.5 million tons in 2014. Patriot's surface mining production would be limited to 6 million tons annually in 2015 and 2016, and 5 million tons in 2017 before a cap of 3 million tons becomes effective in 2018.

For perspective, the phase-in would allow Patriot's strip-mining production to continue for several years at a rate roughly equal to current levels at Patriot's two largest surface mines, the Hobet complex along the Boone-Lincoln County border and the Guyan Mine in Logan County. Together, those mines -- both with workforces represented by the United Mine Workers union -- produce roughly 5.5 million tons of coal a year with about 500 employees.

UMW President Cecil Roberts said he was glad there will be no immediate job losses, but wanted more information about Patriot's specific plans and remained concerned about whether the company will use its bankruptcy to try to dump its liabilities for pensions and health-care benefits for thousands of miners and retirees.

"Coal mining has always been an occupation of continuous change, whether it's technological change, changes in mining methods, changes in markets, or changes in regulations," Roberts said. "Companies have made strategic decisions based on those changes and workers are left to live with the consequences. That is what has happened here."

Over the last 15 years, mountaintop removal has grown more and more controversial, as scientists have documented how the practice damages the environment and found that residents who live near large-scale surface mines face greater risk of serious health problems, including cancer and birth defects.

Since taking office in January 2009, the Obama administration has launched several initiatives to try to curb mountaintop removal, or at least more closely scrutinize new mining permits.

The moves fell well short of the mountaintop removal ban sought by citizen groups. But mining industry officials and coalfield political leaders have opposed the Obama efforts, labeling them part of a "war on coal," and succeeding in overturning U.S. Environmental Protection Agency actions in court.

Mountaintop removal issues have taken somewhat of a backseat in recent months though, as the public debate focused on how cheap natural gas has pushed many utilities away from coal, reducing the industry's share of electricity generation and bringing significant layoffs in West Virginia and Kentucky.

Michael Hendryx, a West Virginia University researcher who has published more than 20 scientific papers linking mountaintop removal to coalfield health problems, said the Patriot settlement sounds like a positive step to help address those issues. "The evidence is clear that large-scale surface mining is harmful to the environment and public health," Hendryx said. "I think this is a terrific development. I would like us to try to keep in mind that as this type of mining declines, it's going to be really important to think about what happens next, to think about different types of employment for the people who live here."